Can You Buy Gold in a Retirement Account?
Gold has long been seen as a protection against inflation and economic uncertainty, yet many retirement accounts do not permit its investment. Luckily, there are ways of investing in physical gold that don’t involve retirement accounts.
One way of investing is with a self-directed IRA, which permits investors to purchase precious metals and other alternative assets directly.
Self-directed IRAs
Gold and other precious metals can make an excellent addition to a retirement portfolio, providing diversification, protecting against inflation and adding wealth over time. However, investors must remember that unlike some investments such as dividends or interest that compound over time, investing in gold will not bring dividends or interest payments over time.
Investors looking to add gold to their retirement account can open a Self-Directed Individual Retirement Account (SDIRA) through a specialty investment company that handles metals, real estate and other assets. Such companies typically charge fees for managing and storing metals at IRS-approved depository accounts.
Many investors choose to fund their new SDIRAs with funds rolled over from existing IRAs, 401(k), or other retirement accounts, so they can use after-tax dollars to purchase physical gold and other precious metals using this strategy. When using this method it’s crucial that all IRS rules and regulations are strictly observed as failing to do so could incur an early withdrawal penalty of 10% and/or income tax liability.
Taxes
Contrary to many IRA investments, physical precious metal gains are tax-free while they remain within your account; however, when distributed they’ll be taxed at your marginal tax rate.
When rolling over funds from another retirement account into a gold IRA account, it’s advisable to work with a company that can take care of everything on your behalf. Such firms offer direct rollover services which allow funds to move directly from one IRA into your new gold IRA without incurring taxes or penalties as a result of missing deadlines or forgetting an important step.
Like any IRA account, gold IRA accounts come with fees such as one-time setup costs and annual management costs. Storage fees will also likely apply when keeping gold at a depository (typically $30 to $70 annually), depending on where your storage strategy lies; you’ll need to decide between using home storage or using an approved third-party depository facility for gold storage purposes.
Liquidity
Gold has long been considered a safe haven during periods of economic instability, and investors often look to diversify their retirement savings with non-traditional investments like gold. Unfortunately, managing an individual retirement account (IRA) funded with precious metals can be complex and requires special regulations; to make sure your account abides with these requirements properly it is wise to consult a fee-only financial planner or advisor who doesn’t receive commissions on securities or precious metals as this will ensure you follow them appropriately.
Although gold may provide some protection from inflation, it should not be the focus of your retirement portfolio. Gold can be costly to buy and store safely, often experiencing sudden price drops that expose it to too much risk for retirement investors.
To purchase physical precious metals in an IRA, you’ll need to work with a company that acts as custodian for your account and sells back at market value. While this method may be more expensive than purchasing gold directly through an IRA provider, and may incur storage fees.
Distributions
Gold can be an excellent addition to your retirement portfolio as a hedge against inflation and long-term wealth preservation tool. However, due to their non-liquid status, precious metal investments may be more costly to sell off and close out than traditional IRA accounts – in fact you may even incur fees to buy back at retail price from your gold IRA custodian – leaving less money behind in the end.
Precious metals IRAs differ from traditional IRAs in that if you withdraw them before age 59 1/2, you will be taxed on their full value; traditional IRAs offer tax-free withdrawals after 59.5. It would therefore be wise to consult a fee-only financial planner or advisor in order to decide whether an IRA holding precious metals would be suitable for your situation and then select an account manager who specializes in precious metals IRAs.
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